Property contracts and coronavirus – mitigating the risks?

Coronavirus came to the world’s attention in December 2019 but now is affecting the UK on an unprecedented scale, prompting law firms across the country to consider its implications on contracts relating to property.

Force Majeure

The first thing that springs to mind in a discussion of the coronavirus effect on contract law is ‘force majeure’ clauses.  It is clear from English case law that a force majeure clause will only apply if it is expressly included in the contract and covers the event that is causing one of the parties to the contract to be unable to fulfill their obligations. This is problematic for many parties (and their lawyers!) as most force majeure clauses in property contracts relate to damage or destruction of the property itself, rather than being an all-encompassing clause covering all unforeseeable events which would make performance of contractual obligations impossible. An example of this might be where a party is unable to comply with an obligation to carry out works, either because the building has been closed due to COVID-19 or because the employees of the contractor are self-isolating and so unavailable for work.

Frustration is a very limited potential alternative which may operate to discharge a party’s contractual obligations but only where the contractual obligations are absolutely impossible to carry out (e.g. if the government imposes travel restrictions and the workforce are unable to attend their place of work in order to carry out their obligations under the contract). It is notable that there are no reported cases in England where a lease has been held to be frustrated. The failed Canary Wharf v European Medicines Agency 2019 case provides an example of the English courts’ strict approach to the doctrine of frustration. Here, the Court found that Brexit did not cause the lease to be frustrated, rejecting arguments that performance of the lease had become illegal and that the common purpose had changed to beyond what was agreed in the lease (both prima facie triggers for frustration) because EMA could no longer use the premises.

What does this mean for you?

It seems likely that companies across the UK could face penalties for not being able to perform their contractual obligations with no help from force majeure clauses or the doctrine of frustration.  Going forward, lawyers may look to include both force majeure provisions and clauses referring expressly to the consequences of COVID-19 in property contracts to try and mitigate the potential problems and risks faced during this period of uncertainty.

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